The proposed legislation was passed by the House of Representatives last year. It is expected to be submitted to the Senate after the Budget in May or June.
My expectation was that it would not be approved as the Government was not listening to the Opposition Senators (Coalition or Independents) about the more stringent rules that in the future will apply to both large and small companies.
I have come to know an R & D Tax Lawyer and only recently referred two of my larger clients with complex company structure issues to him. He was contacted recently by an independent Senator that he knows. That Senator advised that the government now has the other independent Senators on side, so with his agreement the new legislation will get through. He wants to do this while he has the power rather than leaving it all to the new Greens Senators when they have the power after 1 July. He asked the lawyer what changes should be included for him to let it through and the lawyer discussed this with me.
My objection to the proposed legislation (and I believe also the Opposition and others) is that projects will have to be split into core and supporting activities and many supporting activities will be excluded, reducing the claimable R & D expense. The Government is saying it can’t have different rules for large and small companies, but it is having different benefits (higher for smaller companies with turnover under $20m). My request, which the Senator is apparently taking on board, is to not require smaller companies to split their projects into core and supporting activities. Only the larger companies will have to do this and justify the costs of the supporting activities to be included in the calculations. This approach will ensure that all of the project expenditure for smaller companies is eligible and they will not have extra record keeping imposed on them.
The Senator apparently is not happy with the legislation being back dated, so it should only apply to 2011/12. This means that some small businesses for whom 2010/11 will be their fourth year of claim will possibly become eligible for some increased benefits under the old rules where an increase in R & D expenditure in the fourth year over the average of the three prior years attracts increased benefits.
Of course, none of this is cast in stone. Who knows what happens behind closed doors between consenting Senators.
If and when if the legislation is passed, I will send a further blog setting out the new benefits and criteria.
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By Peter Hall
Adapted from an article by Michael Ronai of Ronai & Associates